Risk Sharing in Finance

PROF. HOSSEIN ASKARI is Iran Professor of International Business and International Affairs at the George Washington University. He served for two and a half years on the Executive Board of the IMF and was Special Advisor to the Minister of Finance of Saudi Arabia; during the mid-1980s he was director of the team that developed the first comprehensive domestic, regional and international energy models and plan for Saudi Arabia. He has written extensively on economic development in the Middle East, Islamic economics and finance, international trade and finance, agricultural economics, oil economics and on economic sanctions. He received his university education at MIT. DR. ZAMIR IQBAL works as Lead Investment Officer in the Treasury of the World Bank in Washington, D.C. He earned his Ph.D. in International Finance from the George Washington University, where he also serves as adjunct faculty of International Finance. He has extensive experience with capital markets, structured products, risk management, financial sector development, and financial modeling. His research interests include Islamic finance, financial engineering, structured finance and risk management. He is co-author of several books on Islamic banking and finance. He also serves as Professional Faculty at the John Hopkins Carey Business School where he teaches graduate level courses on investment and portfolio management and risk of financial institutions.DR. NOUREDDINE KRICHENE received his Ph.D. in economics, University of California, Los Angeles, 1980; joined the International Monetary Fund (IMF) in 1986; and held the position of advisor at the Islamic Development Bank.DR. ABBAS MIRAKHOR received his Ph.D. in Economics from Kansas State University in 1969. After teaching at various universities in the USA and in Iran he joined the staff of the Research Department of the IMF in 1984. He became an Executive Director of the IMF from 1990 until his retirement in 2008. He is the author of a number of articles and books on Islamic economics and finance. He is now the first holder of the INCEIF Chair in Islamic Finance.

• Preface ix Acknowledgments xviiGlossary xixPART ONE THE HISTORY AND CAUSES OF FINANCIAL CRISESCHAPTER 1 A Brief History of Financial Crises and Proposed Reforms 3CHAPTER 2 Financialization and the Decoupling–Recoupling Hypotheses 31PART TWO RISK SHARING AND THE ISLAMIC PARADIGMCHAPTER 3 A Brief History of Risk-Sharing Finance 49CHAPTER 4 Risk Sharing and the Islamic Finance Paradigm 69CHAPTER 5 Risk Sharing in the Islamic Financial System: The Building Blocks 95CHAPTER 6 Risk Sharing and Vibrant Capital Markets in Islamic Finance 115CHAPTER 7 Portfolio Theory and Asset Pricing 133CHAPTER 8 Complementary Role of Intermediaries and Markets in Promoting Risk Sharing 159PART THREE MOVING FORWARDCHAPTER 9 Enhanced Access to Finance, Social Welfare, and Economic Development under a Risk-Sharing System 181CHAPTER 10 The Role of Institutions and Governance in Risk Sharing 201CHAPTER 11 Gaps between the Theory and Practice of Islamic Finance 225CHAPTER 12 Concluding Remarks 247References 259Index 277